By LOUIS UCHITELLE

Published: March 18, 1995

WASHINGTON—
What is most striking about Alan S. Blinder's large, sunny office at the Federal Reserve is how quiet it is. That's partly tradition. The men and women who set the nation's interest rates don't drop in on one another very often. But for Mr. Blinder, who came aboard last summer as the Fed's vice chairman, hoping to make his voice heard, the isolation was a big obstacle.

"I thought there would be more governor-to-governor chitchat," Mr. Blinder said in an interview. "I thought the staff would be walking in to my office more, telling me, 'You ought to know about this; you ought to know about that.' That happens to some extent, but not nearly as much as I had imagined it would."

Mr. Blinder found his impact inside the Fed largely limited to what he had to say at meetings of the central bank's policy makers -- meetings dominated by the chairman, Alan Greenspan. But he also took his case to the public, revealing in speeches and interviews the dynamics of the Fed's private policy debates. And gradually Mr. Blinder's influence is starting to be felt.

"My biggest disagreement with my colleagues at the Fed is over openness," Mr. Blinder said. "I believe we should talk to society more and say what we are doing and why we think it is right. But the position of this institution has always been to be extremely tight-lipped."

In breaking with that tradition, he has emerged as the highest official in Washington to publicly caution the Federal Reserve -- his colleagues -- against raising interest rates too much before it is clear to what extent earlier increases will brake the economy. In the past, the White House and Congress played this role. Mr. Blinder's efforts are aimed partly to offset pressure from bond traders who want more rate rises to fight inflation.

"Someone asked me during a recent speech, do I think we can ever achieve zero inflation," Mr. Blinder said. "I said, 'Absolutely, yes.' We can get there in only a couple of years if we are willing to pay the price. But I think if you put the question to ordinary people -- 'Would you like right now to have a recession like the one in the early 1990's to get inflation to zero by 1997?' -- you would be hard put to find a single vote. You can have a more moderate strategy, arriving more slowly with less pain."

Mr. Blinder's impact on the Federal Reserve's actual decisions -- as the first vice chairman appointed by a Democratic President since the 1970's -- is harder to measure. While his predecessors as vice chairman, David W. Mullins Jr. and Manuel H. Johnson Jr., were mainly inflation fighters like Mr. Greenspan, Mr. Blinder provides a different counterpoint. For him, unemployment and inflation should be of equal concern.

Most of the Fed's policy makers -- its governors and the presidents of its regional banks -- endorse at their periodic gatherings the decisions on interest rates their chairman favors. But one or two are beginning to acknowledge the influence of Mr. Blinder and of another Clinton appointee, Janet L. Yellen, an economist at the University of California at Berkeley who also became a Fed governor last year.

"Hopefully, when the time comes to move in the other direction and ease interest rates to avoid a recession, we will be able to move sooner than we otherwise might have," said a top Fed official who declined to be identified. "The Blinder-Yellen analysis may be part of that change."

But not yet. Mr. Blinder's first two attempts to buck rate increases fell short, Fed officials say. Last November, four months after joining the Fed, he argued unsuccessfully against Mr. Greenspan's proposal to raise short-term interest rates by three-quarters of a percentage point. Mr. Blinder and Ms. Yellen instead favored an increase of half a percentage point, Fed officials said. Two meetings later, they reportedly argued against the half-point increase that the Fed's policy makers approved on Feb. 1.

"I believe the classic mistake of Fed policy is to not look far enough ahead and to overreact," Ms. Yellen said. "You have to guard against a possibility that we could say, 'Let's clobber the economy because it has not slowed down enough yet.' "

For all their resistance to higher rates, however, Mr. Blinder and Ms. Yellen voted with the majority in November and in February. "Dissent around here, any dissenting vote, is a big deal," Mr. Blinder said. "This is not like the Supreme Court, where you regularly get 6-3 or 5-4 votes. So you hold your fire until you feel you must shoot."

That dissenting vote almost certainly will not come at the next meeting, on March 28. Evidence in recent weeks of a slowing economy seems likely to keep the policy makers from making any changes in rates.

What's more, the talkative Mr. Blinder, who is 49, shares with the more solemn Mr. Greenspan, who is 69, a basic view that softens their differences. Rate increases are indeed necessary, Mr. Blinder says, when future inflation threatens. He had no problem, he says, with the Fed's rate increases through most of last year. And these increases should curb rising prices over the long run.